Home buyers need to think ahead

An excellent list Sam. It makes me wish I'd run into you before buying my first home. But this one in particular resonates:

If children are in the future, will one of you stop working permanently or temporarily?

I think what happened with us is a common bubble story. My wife and I would have liked her to have stayed home longer than she did when our first child was born. But she needed to go back to work after the three month Family and Medical Leave period because we'd bought the home based on a budget that included two salaries. It was affordable based on those salaries, but doing it on one would have kept me awake nights. And we did not have enough savings left over to supplement income for the six months or year while she stayed home, and still have an emergency fund, in case.

And that just seemed like the way buying a house worked in 2003, for us and many friends. If you wanted someplace half-decent reasonably close to your work in Boston, you couldn't do it on one salary. Many couldn't do it with two.

When we bought the second house in early 2007, again one condition was that it be relatively close to where we worked in Boston. A long commute was something we weren't willing to do, for several reasons including that it meant less time with child #1. But even though prices had turned down dramatically at that point, it still meant the choices were expensive and pretty bad. So when we found the right place we knew it immediately, and we bought. Child #2 followed shortly thereafter, but again my wife staying home more than three months wasn't possible.

I'm not looking for sympathy: we made our choices. And I have no regrets about buying in 2007. Even if it wasn't exactly a financial stroke of genius, we love the house, we can afford it, and we'll be there for 20 years. But buying a house (or two!) in the last ten years often meant making tradeoffs.

I own an investment property now and these price declines pain me greatly. But part of me understands that in the big picture people with ordinary jobs should be able to afford a house on one income. I know many families now where both parents work because of the cost of mortage and daycare in particular, and every one of them -- and I ask -- were raised by a mother who stayed home. Nothing wrong with working mothers mind-you, but the option should be there.

Five years? Clearly based on the speed and volume of foreclosures we have seen, there were many who didn't even think about the next 12 months. I guess everyone just thought they would HELOC themselves to the promised land of wealth without work. The moral of the story is to limit the amount of leverage you take on when buying an illiquid, high transaction cost, high maintenance asset.

it is great to have a plan -- and i think all homebuyers do especially now. but you really can only answer about four of those questions with any degree of certainty. because life happens.

but i agree -- counting on home appreciation as a financial investment in the short term is dicey these days. over twenty years, i think it will still work out pretty well. but how many people stay put for that long any more, unless they have family ties, or a position such as a partner at a law firm or a tenured faculty position at a college/university.

and what you want now may not be what you thought you wanted in five years...
because life happens. how many people are actually where they thought they would be ten years ago? not too many i am guessing.

speaking from personal experience of course.

Valid points, but this would have been more timely 4-9 years ago during the housing frenzy. My impression is that the buyers in the current market are the more prudent ones who likely understand these issues already.

The people who really need a plan are the Boomers who are now buying $600K, $700K, $900K, and "one-point" properties with 30-year mortgages. They can barely make the payments now; how are they going to pay the mortgage at age 70? Clearly, many are fantasizing a return to bubble-era appreciation to bail them out with a timely windfall when they get sick, retire, or can no longer get hired, and sadly, their doomed lenders share this fantasy. Or else their "plan" is that the taxpayer will write them the big check that their fabulous, center-of-the-universe selves are so justly entitled to.

By the way, it now takes less time to get a letter to the editor published in the paper than to see a comment show up on the website. The Globe seems so bent on economic suicide I'm starting to think the management team is on Chantix.